Business Law Ch. 19 Formation and Terms of Sales Contracts
Offer and Acceptance
-A contract is formed in any manner to show agreement -Lack of agreement on all terms does not prevent creation of a contract -The irrevocable "firm offer" does not require separate consideration -Acceptance in "any reasonable manner" is acceptable and effective upon dispatch -Timely expression of acceptance creates a contract even if the terms differ from the offer -An offer inviting "prompt shipment" permits acceptance by prompt promise to ship or prompt shipping
The Lease of Goods
-A transfer of the right to possess and use goods belonging to another -UCC Article 2A governs this
Statute of Frauds
-A writing is necessary for any contract for the sale of goods = to or greater than $500
Entrusting Goods
-Anyone who entrusts goods to a merchant who regularly deals in such goods gives the merchant the power to give good title to a buyer in the ordinary course of business (ex. Consignments)
Title and 3rd parties under the UCC
-At common law, a person can transfer "no greater rights" in property than he himself possesses -There UCC does provide 3 exceptions to this though
Insurable Interest
-Begins for the buyer when the goods are identified in the contract -Begins for the seller as long as they have title or a security interest in the goods
Sales on Consignment
-Buyer to act as sellers selling agent -risk and title remains with the seller (consignor)
Risk of Loss
-Common law places risk of loss on the party who had technical title at the time of the loss -The UCC rejects this approach
Output Contracts
-Contracts where the buyer must purchase the entire output of the seller -The UCC restricts the foregoing to "such actual output as may occur in good faith" -Except that this may be overcome if the amount is "unreasonable disproportionate" to the estimate in the contract or "normal" if no estimate is made
Requirement Contracts
-Contracts where the seller must supply the buyers requirements -The UCC restricts the foregoing to "such actual requirement as may occur in good faith" -Except that this may be overcome if the amount is "unreasonable disproportionate" to the estimate in the contract or "normal" if no estimate is made
No writing is needed if
-Enforcement is against a merchant -A memorandum is received w/in 10 days and there is no objection w/in 10 days after the memorandum was sent -Custom made goods -Where a party admits existence of the contract -Where the goods are accepted and/or paid for
No Arrival, No Sale
-Expense and risk of shipment are born by the seller
Acronyms to facilitate shipment contracts
-FOB -FAS -CIF -C&F
Destination Contacts (Seller guarantees delivery)
-FOB Destination -Ex-Ship -No arrival, no sale
Price Terms
-Fixed price is not an essential term -If no price is specified look to the "reasonable price at time of delivery" i. If the price is omitted or if the price is to be determined later by market value ii. There is no agreement if the price was never agreed upon
Terms of Sales Contracts
-Gap fillers -Price terms -Quantity terms -Delivery terms -Time terms
Generally UCC requirements
-Good faith -Commercially reasonable manner
Sales or Return
-Goods delivered to a buyer primarily for resale and the buyer has the right to return them -Risk of loss is on the buyer
Sale on Approval
-Goods delivered to a buyer primarily for the buyers use -Opportunity is given for the buyer to examine and try before accepting -Risk of loss and title do not pass until acceptance
What is Buyers Rejection?
-If buyer rejected then title reverts back to the seller upon rejection by the buyer
Shipment Contracts (seller agrees to ship but does not guarantee delivery)
-If shipment of goods is required by a carrier, but does not require that the seller guarantee delivery to a specific destination, then risk of loss passes to the buyer when the goods are delivered to the carrier
Breach of contract and risk of loss
-If the buyer lawfully rejects the goods then risk of loss remains on the seller
When is "physical delivery"?
-If the contract says "to ship" then the title passes when the goods are delivered to a common carrier -If the contract says "delivery" then title passes when the goods are delivered
Title of goods in UCC
-Numerous changes from common law -General title rules under the UCC -Buyers rejection
The UCC vs Common Law
-Offer and Acceptance -Consideration -Statue of Fraud
Transfer of voidable title
-One can pass good title to a "good faith purchaser for value" -This places the burden of loss on the party (Seller) who had the best opportunity to avoid the harm -The original owners bear the burden of collecting from the fraudulent first buyer
Quantity Terms
-Output/Requirements Contracts -Exclusive Dealing Contracts
Terms of Agreement
-Risk of loss can be specified in the agreement
Sales Contracts under the UCC
-Sales of goods -Lease of goods -Higher Standards of merchants -General UCC requirements -The UCC vs Common Law
C&F (Cost and Freight)
-Same as above except no obligation too insure
FAS (Free Along Side)
-Seller bears cost and risk of loss until "alongside" a particular maritime vessel
FOB (Free On Board)
-Seller bears cost and risk of loss until delivery to carrier such as UPS
FOB destination
-Seller guarantees delivery to a particular destination
Ex-Ship
-Seller ramians liable until the goods are unloaded
Consideration
-Separate consideration is not needed in a "firm offer" to make the offer irrevocable -Separate consideration is not needed for modification of a contract for the sale of goods
When does Article 2 of UCC not apply?
-Services -Real Estate -The court may look to the UCC for guidance in these instances though
Delivery Terms
-Shipment is to be in a "single-lot" unless specified otherwise -Delivery is to be to the sellers place of business if the contract is silent except if the identified goods are not with the seller, then where the goods are located
Time Terms
-The code allows a "reasonable time" for performance if the contract is silent -Payment is due at the "time and place at which the buyer is to receive the goods"
CIF (Cost, Insurance, Freight)
-The price of goods includes the cost of shipping and insurance, so the seller bears the expense and risk of loss of loading the goods
Higer Stadards of Merchant
-The term "Merchant" is often subject to case-by-case analysis -Generally means someone who regularly engages in commerce regarding the type of goods in question
Buyers in the ordinary course of business
-This is someone who, in good faith, buys goods from a person dealing in goods of the type w/o knowing the sale violates the ownership rights of any third party -Under the UCC the buyer takes free of any security interest -This provision is intended to protect those who innocently buy from a merchant
What is the meaning of title in UCC?
-Title means OWNERSHIP not just possession
When does the title pass if delivery w/o moving the goods is specified in the contract?
-Title passes at the "time and place of contracting" if the goods subject to the contract are clearly identifiable
Title rules under UCC
-Title passes to the buyer when the seller completes performance regarding "physical delivery" of the goods -Delivery w/out moving the goods if specified in the contract -Negotiable Document of title
Negotiable Document of Title
-Title passes when the document of title is delivered
The Sales of Goods
-Transfer of ownership to tangible personal property in exchange for money, other goods, or performance of services -Governed by UCC article 2
The UCC three exceptions
-Transfer of voidable title -Buyers in the ordinary course of business -Entrusting goods
Gap Fillers
-Used to fill in areas the parties failed to address
UCC Article 2
-Usually only applies to goods -Where a contract mixes goods and services, the court looks to whether the "predominant" part or "incidental" part of the contract pertains to goods
Exclusive Dealing Contracts
-Where one or both parties to the contract bind themselves to dealing solely w/ the other party regarding the type of goods that are subject of the contract -The UCC provides that unless the parties agree to the contrary, Seller has a duty to use his/her "best efforts" to supply the Buyer and conversely the Buyer has a duty to use his/her "best efforts" to sell the goods.
When does article 2 of UCC apply?
-Where the predominate part pertains to goods